Well if a lowly little billion dollar bond insurer can be on the hook for 140billion$US,then I'd say that more government sanctioned lies are in the offing to defend the "too big to fail" boyz. Is Tim-Tim's nose getting bigger or is it just the tv screen?. Profits to all.BMD.
US bond insurer ceases payouts By Aline van Duyn in New York Published: April 30 2009 23:38 | Last updated: April 30 2009 23:38
Banks and other investors face a bill of more than $1bn after a large US bond insurer became the first since the credit crisis struck to cease to pay out claims, which is expected to trigger payouts on billions of dollars of credit derivatives.
Insurance regulators forced Syncora, the insurer that is better known by its former name SCA, to stop paying claims this week so that it could try to negotiate an agreement with banks to reduce its liabilities enough to manage future claims.
Syncora has guaranteed more than $140bn of bonds, mainly municipal debt and structured finance. In spite of the pressures wrought by the credit crisis on the bond insurers, or monolines, such as Ambac and MBIA, no others have so far been forced to cease paying claims.
About $18bn worth of credit default swaps, which provide protection against a company defaulting on its debt, have been written on the debt of Syncora itself.
Under the rules of these derivatives, the stop on claims payouts by Syncora is considered a default by the company, which could trigger payouts as early as Friday after a three-day grace period expired on Thursday.
While the total volume of the derivatives is about $18bn, the net exposure, which represents the likely amount of payouts that would be made on the derivatives, is slightly more than $1bn, according to industry data. Details of buyers or sellers are not known.
Banks, insurance companies and other investors involved in the market put up collateral against their credit derivatives exposures, which means some of the $1bn in payouts will already be in the hands of those due to receive them.
Syncora’s finances turned sour after bonds linked to risky mortgage securities proved to be much riskier than anticipated in the credit crisis.
If the company were to be unable to restructure by May 29, New York’s insurance regulators may take it over in order to manage its liquidation, which would allow them to prioritise claims.
Syncora has been negotiating with banks since last July as it has attempted to write off or to “commute” some of the $56bn of guarantees that SCA wrote on collateralised debt obligations (CDOs).
At least some of the 13 banks involved in the talks may get payouts on the triggered derivatives. That may make them more willing to write off or to reduce their other claims.
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